Snap’s ad woes turned some of Wall Street’s worst fears into a reality, stumbling across the internet

Snap Inc.’s stock fell. sharply on Friday as Wall Street took a closer look at the company’s recent streak of disappointing news, which is likely to rock the broader internet sector as well.

SNAP shares, a Snapchat parent,
-30.86%
It fell more than 30% in morning trading Friday after the company’s latest earnings report, but sharp stock moves have become familiar to Snap investors this year. If the current declines continue into the close, Snap shares will post their worst one-day percentage drop since July 22, when they lost 39%. The stock’s record drop was a 43% drop after an earnings warning in May.

Fellow Internet shares soared after Snap, with Pinterest Inc. PINS,
-8.47%
Down 5.7%, Facebook Meta Platforms Inc. META,
-3.20%
2.8% off, Roblox Corp. RBLX,
-1.41%
down 2.1%. Shares of Alphabet Inc. GOOG,
-1.37%

Google,
-1.15%And the
Which Google owns, fell about 0.5%.

Snap announced its first stock buyback program along with a report Thursday afternoon, but fourth-quarter revenue is up A little shy of the Wall Street sign And the slowest growth form ever. Snap executives seem to be anticipating more pain during the holiday season: In a letter to shareholders, they said advertising partners were slashing marketing budgets due to headwinds from inflation and cost pressures.

Executives declined to provide a full forecast for the fourth quarter, simply telling investors that the outlook is “still very challenging.”

While expectations were low going into results given the stock’s sharp year-to-date decline, Snap appears to have “lost all momentum,” said AB Bernstein analysts Mark Schmulek and James McNeil, who downgraded the stock to market performance. outperformed and lowered the target price to $9 per share from $15.

“Even usually credible engagement trends have shown cracks, with time in the U.S., premature 8K and unguided evidence have only served to confuse the investor, despite management’s intentions on transparency,” analysts told clients in a note.

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Snap shares surged in late August after the company filed for Emphasizing job cuts means helping cut costs but calls for sudden sales growth. Some analysts had increased their expectations for the social media group based on sentiment from this recording.

The company’s 5% year-over-year decline in US “time spent” was a common sore point among angry analysts. “Snap needs to fix the sharing issue quickly,” said a team of analysts at Evercore led by Mark Mahaney. He kept a direct rating for the stock but cut his target price to $14 a share from $17 and lowered estimates.

The Evercore team said Snap faces opposite challenges related to the macro economy, platform changes, and competition from Google, Facebook and TikTok. On the platform front, analysts noted the continuing effects of Apple Inc.’s privacy-related changes. Which complicated the tracking of ads.

Another reduction came from Rohit Kulkarni of MKM Partners, who downgraded Snap to neutral from buy and moved to a fair value estimate of $10 from $15. He said he had “overestimated Snap’s management’s ability to weather the macro/Apple headwinds in 2022, which in turn amplified the partial weakness in its business.”

“We now believe Snap will have a hard time staying in control of its destiny over the next six to nine months,” Kulkarni said. His reasoning is that many advertisers view Snap as a “beta platform,” meaning that marketers will likely cut their budgets on this type of platform first amid economic weakness. He also said Snap is showing a “critical loss of stake for TikTok,” while the company has several management loopholes to fill that could complicate its ability to implement in the medium term.

As for the competition and Those fears of canaries in the coal mineSnap management’s revelation of weaker brand spending may be a cautionary signal for Twitter TWTR,
-5.05%
YouTube is owned by Alphabet, the analyst said.

Twitter shares also came under pressure on Friday, although it was not clear how much that action related to Snap’s suspension in the ad market. Twitter is in the process of acquiring Tesla Inc. Elon Musk, but a report indicated that the US administration He can think of the probe of Musk’s projects, including his pending $44 billion deal for the company.

Evercore’s Mahani agreed that Snap’s earnings could be negative for the internet advertising sector, but he saw most of the disappointing headlines as being of the company. For example, Meta and Alphabet are larger and you can see the effects of “ad spend consolidation”. Alphabet is also among the companies that offer “highly measurable conversions,” along with Amazon.com Inc. These types of companies can be in a better position.

He also feels Snap is being hurt by its own administrative loopholes.

Mahani is cutting Snap’s 2023 revenue estimate by 10%. “The META and GOOGL headwinds are likely to be significantly less severe, and the PINS headwinds are likely to be slightly less severe than they are in Snap,” he said.

Brad Erickson and Logan Reich of RBC Capital Markets said that in previous quarters, Snap’s bad news had proven to be “kind of lost” when it came to the larger sector, and recent verifications had not indicated “significant macroeconomic headwinds” to the broader industry.

However, the pair trimmed estimates and lowered the price target to $8 from $11, while maintaining the sector’s rating. “We remain marginalized because we haven’t seen evidence that platform can lead to differentiated transfers and extra dollars being charged. We need to see evidence that SNAP can lead to more sustainable spending that is less susceptible to aggregate pressures,” they said.

Snap’s current average price target is $10.99, down from $13.95 at the end of September, according to FactSet. And for Global Equity Research, at the moment, the lowest price target is $3, with a sell rating.

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